BY BERTRAND FAURE
A rebound in the oil price, a more accommodative tone from the Fed, better than expected statistics in the US and historical BCE actions led March to become the first month in 2016 with a positive return (+1.40% for the Fund’s benchmark) but also the first positive month after a 13.0% retracement over the December 2015 – February 2016 period. Despite a sizable rebound since mid-February (+12%), the Fund’s benchmark is still down 8.12% year to date at the end of the quarter.
In that context, the Fund also managed to post a strong rebound with a +4.78% return in March, outperforming its benchmark by 3.38%. For the first quarter, the Fund’s performance was -2.93%, a 5.19% outperformance versus its index.
26 investments positively contributed to performance in March, and 4 were in negative territory. For the second month in a row, SLM Solutions was the most significant contributor, followed, this month, by Brembo and Kendrion. At the other end of the spectrum, Fermentalg, Aubay and Cancom were the three main detractors.
Despite the 8.12% decline in the European markets in the first quarter, 17 of the Fund’s 31 investments during the period managed to report a positive return. The 3 main contributors were: Aubay, SLM Solutions and Komax while the 3 main detractors were: Mersen, Fermentalg and Saf-Holland.
Revisions to consensus 12-month forward EPS estimates have been sharply negative again this year to date: down by over 7% for the SXXP. The consensus now expects 1% EPS growth compared with 8% at the outset of the year. Much of this decrease is heavily weighted to the Oil and Basic Resources sectors. Banks too have contributed a large share of the downgrades. But this is far from the entire story. Of the 19 STOXX sectors, 17 have seen downgrades. The market has arguably been pricing in a turn in earnings in Europe which continues to fail to materialize, and is one of the reasons for the recent correction in the markets. In the Investment Adviser’s opinion, European equities could remain flattish and volatile in 2016 but with much dispersion within the index in terms of sectors and themes, which the Investment Adviser shall try to exploit, as was the case in March.
The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 11/04/16 and are based on internal research and modelling.